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Pentagon cancels $10 billion JEDI contract challenged by Amazon, ending long-contested cloud-computing deal

The Joint Enterprise Defense Infrastructure deal awarded Microsoft has been tied up in the courts for years

The Pentagon, citing evolving requirements and industry advances, said the cloud-computing contract awarded to Microsoft no longer meets its needs. (Staff/AFP/Getty Images)

The Pentagon scuttled its massive cloud-computing contract on Tuesday, opting to restart a process Microsoft won twice rather than be drawn any further into a years-long legal drama with Amazon that had no end in sight.

In canceling and replacing the 10-year, $10 billion contract, the Defense Department will move away from the winner-take-all guidelines that drew protests from such rivals as Oracle and IBM as early as 2018, before the bids were due. A new contract will be started from scratch, on which both Microsoft and Amazon can bid.

The reversal ends a tortuous legal battle over the 2019 contract, replete with allegations of interference by President Donald Trump. Amazon alleged that he improperly influenced the outcome to retaliate against its founder, Jeff Bezos, who also owns The Washington Post.

The move also marks a significant setback for the U.S. military: Though it leads the world in weapons development, surveillance technology and the like, it has long lagged the private sector in the computing realm.

The result is that innovations built on cloud computing ― available to the smallest businesses or anyone with a smartphone ― are not being fully realized by an institution that spends more than $700 billion a year in taxpayer funding to ensure it has the most advanced capabilities in the world.

“The troops expect to have information at their fingertips, and that information comes through the cloud, so they are missing out on what everyday Americans have access to,” said Arnold Punaro, a retired Marine Corps general and Democratic Senate staffer who now works as an industry consultant. “We’ve been waiting around because of this bureaucratic procurement process, which in my view was flawed from the outset.”

Former defense officials, including then-Secretary Jim Mattis, billed the Joint Enterprise Defense Infrastructure (JEDI) as a way to simplify the Pentagon’s numerous stove-piped information systems and help the U.S. win an artificial-intelligence arms race with China. They insisted on giving the contract to just one company despite concerns that such an approach might create a kind of monopoly.

The Pentagon’s decision to award the contract to Microsoft in 2019 came as a surprise, given Amazon’s technological dominance in cloud computing. It remains the market leader, and by a long shot: It’s the only company that is allowed to hold top-secret data. (A Microsoft spokesman said the company is working to attain similar clearance.)

At the time Microsoft won the award, every competitor except Amazon had criticized the government’s single-award approach. Oracle alleged that a web of unsavory relationships involving Amazon and the Defense Department gave the company an unfair advantage. That bid protest is currently under appeal, and Oracle seeks to bring it to the Supreme Court.

But when Microsoft was awarded the deal, the spotlight shifted to Trump, who claimed he had received complaints about Amazon from “some of the greatest companies in the world,” specifically referencing Oracle, Microsoft and IBM. Trump’s interest in the contract ― along with his repeated public broadsides against Bezos ― became a key part of the tech giant’s challenge. Trump repeatedly disparaged Bezos and Amazon while in office, and frequently complained about The Post’s coverage of his presidency.

That bid protest forced the Defense Department to halt its work with Microsoft and reevaluate its decision after the Court of Federal Claims concluded that the Pentagon’s evaluators had made a mistake on one aspect of its bid evaluations. The agency re-awarded the contract to Microsoft after correcting its mistake.

But Amazon pressed forward with its legal campaign, along with its request to depose certain top officials, including Trump and Mattis. The court rejected a motion filed by Microsoft to dismiss those allegations, clearing the way for Amazon to argue for depositions.

The allegations brought by both companies were examined in a lengthy report from the Defense Department inspector general. The inspector general found that one Amazon official had broken the rules when he left government to work for Amazon, referring the case to the Justice Department.

It also concluded that the bureaucrats who had evaluated bids were not influenced by Trump’s broadsides against Bezos, but was unable to draw firm conclusions about the White House’s role because the Trump administration refused to make key officials available.

Throughout it all, the Pentagon was forbidden from moving forward with Microsoft. Now, so much time has passed that it no longer wants the single-cloud approach that has been at the core of JEDI.

John Sherman, acting chief information officer for the Defense Department, said in an interview Tuesday that he still thinks going to a single company was the right approach when JEDI was being drawn up in 2017. But the state of technology has changed in the years since, as have the Pentagon’s needs.

“JEDI was the right approach at the time,” Sherman said. “But over the last couple of years, given the shifting landscape, we’re in a different place now.” The new multiple-award approach, Sherman said, “is an opportunity we must take” in order to “use all the arrows in our quiver.”

With a $10 billion cloud-computing deal snarled in court, the Pentagon may move forward without it

While the decision is a massive financial blow to Microsoft, the software giant took a pragmatic tone on Tuesday.

“The DoD faced a difficult choice: Continue with what could be a years-long litigation battle or find another path forward,” Toni Townes-Whitley, president of U.S. regulated industries, wrote in a blog post. “The security of the United States is more important than any single contract, and we know that Microsoft will do well when the nation does well.”

Townes-Whitley said the company will continue to pursue the Pentagon’s cloud business, and took a veiled swipe at Amazon: “Our focus on our customer, and not politics or litigation, is the cornerstone of our approach to help governments and businesses achieve their mission outcomes.”

Amazon spokesman Drew Herdener said the company agrees with the decision to cancel JEDI because the award “was not based on the merits of the proposals and instead was the result of outside influence,” a not-so-subtle reference to Trump.

“We look forward to continuing to support the DOD’s modernization efforts and building solutions that help accomplish their critical missions,” Herdener said.

While Amazon succeeded in ripping the JEDI deal away from Microsoft, it does not mean it’s a lock for the new contract — something that seemed unthinkable when the bidding began.

Still, Amazon stock shot up 4.7 percent, to $3,675.74, after Tuesday’s announcement. Microsoft was nearly unchanged at $277.66.

Microsoft’s selection to become the U.S. military’s primary cloud provider may well have a long-lasting benefit for the Redmond, Wash.-based company. It also gave Microsoft time to build out its cloud offerings to better compete against Amazon, both with government contracts and corporate deals.

“Winning the contract helped establish Microsoft’s credibility as a viable alternative to Amazon," said Mark Moerdler, an analyst at Bernstein Research. “Even though JEDI has been canceled, Microsoft has won through this process.”